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9  Working-age benefits

9.1  Definitions and projection method

Welfare spending, as discussed in the 2009 Statement and this paper, refers to all social security and welfare expenditure listed in the government's accounts - with the exception of NZS. NZS is excluded because it is dealt with in its own section of the 2009 Statement. While welfare spending includes some administration costs, the majority of it relates to benefits, transfers, and tax credits.[23]

Welfare spending is grouped into three different categories for the purposes of projections:

  • Unemployment benefit (UB)
  • Domestic purposes benefit (DPB), invalid's benefit (IB) and sickness benefit (SB)
  • Other welfare assistance and expenses.

In each case, two drivers are applied to project forward the expense figures from their forecast values: projected recipient numbers and an indexation regime.

The different recipient groups are the main reason for differentiating the three categories, because the indexation regime applied (inflation indexation via the CPI) is the same for each category in all the main scenarios in the 2009 Statement.

Unlike NZS, there is no legal requirement to index the various benefit and transfer rates. Despite this, since the early 1990s, the major benefit types (UB, DPB, IB, SB), as well as a number of smaller ones, have been inflation-indexed each year.

Working for families (WFF) tax credits are not inflation-indexed each year, but rather only when cumulative inflation, as measured by the CPI, related to their last indexation date has surpassed 5%. Not all of the WFF credits are indexed in this way - just the largest component, family tax credit, and the starting income level for abatement. A smaller component, minimum family tax credit, is inflation-indexed annually in a different manner.

A number of smaller benefit types and transfers are not inflation-indexed each year. Accommodation supplement (AS) is the only transfer of significant size that is not indexed. Despite this, and the fact that WFF tax credits are not indexed each year, the modelling here, and in the 2009 Statement, assumes annual inflation-indexation for all welfare spending. Three reasons for doing this are outlined below.

  • Benefit types or transfers that are not annually indexed, such as AS, tend to receive rate increases from time to time on an ad hoc basis.
  • While the indexation of WFF tax credits is not annual, in the long-run it achieves similar results and indexing the abatement threshold ultimately results in higher amounts of non-indexed components, like the in-work tax credit, being paid out.
  • The administration costs included in the category other welfare assistance and expenses are likely to grow with inflation at least, especially as wages are a big component of them.

The recipient numbers used for each major category attempt to reflect the growth of the main demographic groups involved. In the case of other welfare assistance and expenses, this is based on the entire population growth, because benefits such as WFF tax credits and even AS are received by males and females, of a wide range of ages and from various socio-economic groups.

Notes

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